Compensation Professionals, Is That Really a Best Practice?
If our thoughts on food were viewed the same way we measure compensation trends, our unhealthy lifestyle would be considered a best practice.
Knowing what everyone else is doing is great. Doing what everyone else is doing may not be so great. In the world of compensation, we often confuse the term “best practices” with things that are actually just common practices. Invariably, when the discussion turns to pay, someone will ask for data on trends or even the actions of specific companies. Imagine if we focused on what other companies actually should be doing. Many pay programs would look far different.
If we looked at life like we looked at pay, not exercising would be considered a best practice. Eating junk food and drinking soda would be considered the best practice. Spending hours a day on social media would be an aspiration. These things often show up on surveys as things many people do. Instead of calling them the best practices, we call them bad habits.
Best practices would include the things that only a minority of us do. Exercise regularly and eat healthy food are not common, but are certainly best practices. Turning off our phones in the car (and just about anywhere you may annoy other humans) can save lives and help us enjoy driving. The list of uncommon best practices is long and varied.
Equity compensation is one of the truly opaque areas of the total rewards universe. The rules are regulations are complex. Survey data is thin and volatile. Details are hard to come by. Most importantly very few companies or employees believe these programs are working well at accomplishing their objectives (if any objectives have been set at all.)
The real best practices on equity are found at the edges, in the corners and behind the curtains of survey data, trend articles, and recent big winners.
I like to say a good program starts with knowing “who you want to be when you grow up.” The potential future value of the company and the time and number of employees it will take to get there should be a major driving force in any equity plan design.
The intent of the program (there may be more than one) must also be clearly defined. None of this lame “attract, motivate and retain” pablum. Be real. Be specific. Be honest, Talk about values. Talk about impact. Link the intent to things you are observing.
Once you have your distant goal on the horizon defined, you can start looking at how equity can get you there. Vesting schedules, expiration terms, grant sizes, types of equity, limits, eligibility and much more are all ingredients into your special recipe for success. Yes, you can just copy from the cookbook, but that’s not a way to make spectacular food.
Equity is wildly flexible. A great equity program is the result of custom-fitting the design and grant levels to the unique entity you work for. If you are following exactly in the steps of the companies who came before you, it will be impossible to get ahead of them. Know what everyone else does, then do what is best for your company. They are seldom the same thing.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He is a leading expert on incentive plan and equity compensation issues and has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.